11 March 2014, The Cambridge office and laboratory market continues to prosper but a diminishing supply of existing stock and the draining of the development pipeline is causing anxiety for those with commercial property interests in the city.

That is the conclusion drawn by national property consultancy Carter Jonas in its latest Commercial Edge Cambridge research report which shines a spotlight on office and laboratory property market prospects in the city’s sphere of influence.

The report not only reinforces the view that pre-letting is now the only way to secure Grade A quality accommodation in the city, but also raises concerns about the paucity of remaining opportunities in the development pipeline which sees Carter Jonas identify the urgent need for speculative development.

Availability

In 2013, there was a 38 per cent increase in take-up of space in comparison with the previous twelve month period.

The availability of existing built stock at over 5,000 sq ft is at perilously low levels, with the Cambridge office and laboratory market offering less than fifteen months’ supply, based on the 5-year average take-up levels. 

Development pipeline

By the end of 2013, the development pipeline – ie schemes benefiting from planning consent – totalled 2.8 million sq ft. That is 1.5 million sq ft less than the comparable figure for the year before (2012). 

Key schemes providing space include CB1, Station Road, Cambridge Biomedical Campus at Addenbrooke’s Hospital, Cambourne Business Park, Haverhill Research Park and Cambridge Science Park’s Phase VI. But many of these locations – plus others – have already seen significant draw-down from the development pipeline by design & build and pre-let deals.

Rental forecast

Rental consolidation, as opposed to growth, was evident across the market in 2013. Several headline deals were achieved in the city centre - £33.00 per sq ft (psf) was achieved in the deal with Birketts LLP at 22 Station Road with others in close proximity, including the deal to Mott MacDonald at £32.50 psf and £30.50 agreed with Siemens at Francis House on Hills Road.

In the business park belt outside the city centre core, headline rents remained static at £26.50 psf.  Demand here is forecast to continue to strengthen during 2014 but incentive packages are likely to be reduced rather than further rental growth being achieved.

By the end of this year, headline or quoting rents in the prime Cambridge zone are expected to be £35.00 psf, with £27.50 psf in the zone which includes the Cambridge Science Park, £25.00 psf in the southern cluster in which Granta Park and the Babraham Research Campus are located and £19.00 psf in the outer Cambridge zone which encompasses Cambourne Business Park and Haverhill Research Park.

Office investment market

Upbeat investor interest remains in Cambridge offices.  Yields for well secured 10-yer income moved in significantly during the final two quarters of 2013 from 6.5 per cent to 6.0 per cent as evidenced by 22 Station Road, CB1 and Vision Park, Histon.

Carter Jonas is forecasting that forward funding and/or prime freehold investments will be attracting 5.75 per cent or better during 2014 – on a par with the Thames Valley/West London corridor markets.

In calling for speculative development, Carter Jonas explains there is anxiety about land availability for any new development opportunities.

Will Mooney, Carter Jonas partner and head of its commercial agency and professional services in the eastern region, comments:  “The notable reduction of the development pipeline is in sharp contrast to the majority of other regional office markets in the UK. Speculative development levels remain very low, despite fast-improving market conditions.

“Land that is about to be allocated in our two local authorities’ local plans is supposed to serve future commercial development interests but much is already being earmarked by potential occupiers looking to accommodate their current and near-future needs.

“This poses problems for those charged with identifying future, realistic site and land opportunities in and around Cambridge.

“It also raises concerns about the future expansion and viability of the Cambridge office and laboratory market.”

A copy of Commercial Edge Cambridge 2014 can be downloaded or requested via http://www.carterjonas.co.uk/news-and-events/publications.aspx